The Corporate Income Tax Has Got to Go

News that Pfizer, the world’s largest pharmaceutical company, plans to buy Britain’s AstraZeneca for $106 billion, renounce its U.S. citizenship, and declare itself a British company, has jolted Congress. Pfizer is being denounced as disloyal to the land of its birth, and politicians are devising ways to stop Pfizer from departing.

Yet Pfizer is not alone. Hedge fund managers are urging giant corporations like Walgreens to go nation-shopping for new residences abroad to evade the 35 percent U.S. corporate income tax. Britain’s corporate income tax is 20 percent, and Pfizer stands to save over $1 billion a year by moving there.

In what are called “inversions,” dozens of U.S. companies have bought up foreign rivals, and then moved abroad to countries with lower tax rates, cutting revenue to the U.S. Treasury. But Pfizer is far and away the biggest.

The real question, however, is not why companies are fleeing the USA, but why our politicians continue to drive them out of the country.

Consider. Here in America we do not tax charities, churches or colleges. Yet these institutions produce a fraction of the jobs that businesses produce. If, as a nation, we are committed to “creating jobs,” does it make sense to impose the highest corporate tax rate in the Western world on our biggest and best job creators? Is this not economic masochism?

Many governors understand that if you want something in your state, you do not drive it out with high taxes. You strengthen the magnet of low taxes. Florida wants residents of other states to move there and retire there, so it has no income, estate or inheritance tax. For years, Rep. Jack Kemp urged the creation of enterprise zones in poor communities like Benton Harbor, Michigan, and Harlan County, Kentucky. Businesses that relocated there would be exempt from corporate income taxes.

Why not make the United States the largest enterprise zone on earth—by abolishing the corporate income tax?

If the corporate income tax were repealed, no U.S. company would think of moving abroad, and every transnational company would think about moving to the USA. What a message this repeal of the U.S. corporate income tax would send to corporate headquarters worldwide: Relocate your company or next factory to the USA, keep every dollar of profit you earn, and either reinvest it here or take it home. Your call.

How would America benefit? Every U.S. company, liberated from its corporate tax burden, would see its profits soar and have more cash on hand for cutting prices, raising wages and salaries, and new investment and hires. And every company that relocated here would create new U.S. jobs. This would be a stimulus package to end all stimulus packages.

Isn’t this what we all want? Or are we not willing to create jobs here if the means of doing so conflict with redistributionist ideology?

Consider the other benefits of abolishing the corporate tax. Corporate lobbyists, who spend their days walking Capitol Hill corridors seeking tax breaks, and their evenings at fundraisers handing $1,000 checks to congressmen who can create tax loopholes—in a form of legalized corruption and glorified bribery, could be put out to pasture.

Armies of tax lawyers, accountants and IRS agents could be shifted to more productive work. Companies could focus full time on creating new wealth, not finding ways to keep what they have earned.

Many politicians seem to think the corporate tax punishes the rich and powerful and is an indispensable weapon in reducing inequality and redistributing wealth. This is neosocialist myth. As Ronald Reagan used to say, corporations don’t pay taxes, people do.

The billions in corporate income taxes paid by Wal-Mart and McDonald’s come out of the dollars spent by consumers who shop at Wal-Mart’s and eat at McDonald’s. Where else does Ford Motor get the money to pay its corporate income tax, if not from dollars spent by Middle Americans on Ford cars and trucks? Middle America pays the corporate income tax.

How could we make up for the lost revenue to government? Simple. The corporate income tax last year produced $273 billion, less than a tenth of federal revenue. Imports, which kill U.S. jobs and subtract from GDP, totaled $2.7 trillion last year. Put a 10 percent tariff on imports, and the abolition of the U.S. corporate income tax becomes a revenue-neutral proposal.

Looking back, consider what our political class has done to our once self-sufficient American Republic. We impose on businesses, our principal job creators, the most punitive corporate tax rate in the West. Through “free trade,” we tell U.S. companies that if they wish to avoid our taxes and get around our minimum wage, health, safety, and environmental laws, they can move to China, produce there, and bring their products back free of charge—and kill their competitors too patriotic to leave America.

“The Decline and Fall of the United States of America” is going to be a piece of cake for future historians to write.

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31 Responses to The Corporate Income Tax Has Got to Go

While I agree with the idea of an import tax, I doubt that businesses would expand significantly in the face of a corporate income tax reduction. Indeed, US firms currently have record high profits (as a percentage of GDP), but the unemployment rate is still too high. I expect the reduced tax will be added to profits, and distributed as dividends and/or share buy-backs. This will not drive growth. Sadly, most businesses do not recognize that the economy is an ecosystem. Firms view employees as costs to be eliminated, not as people who spend their wages on firms’ products.

Rather than the corporate income tax, eliminate the employee and employer portion of the payroll tax. Employees will spend the money (and so businesses will eventually end up with the money anyway). This will drive growth: businesses hire when they are swamped with demand (not when they have high profits).

The question to ask is not who pays the taxes or what method we have for tax collection. The question to ask is; why do we need the taxes in the first place? Other then to control inflation,by taxing back the purchasing power of the American people,taxes are a method of redistributing wealth from the productive Economic Class to the unproductive Political Class.It is the tremendous growth over the last several decades,in America,of the welfare/warfare state and the large government establishment that is used to control that state which is the cause of not only the large corporate tax burden but the tax burden on all of productive society. Over 90% of Federal Government expenditures goes for basically 4 things: Social Security,Medicare/Medicaid,military spending and interest on the Federal Debt. Unless and until this spending is either brought under control or dismantled altogether talk of tax reform is a waste of time. Basically America’s problems are not a tax problem but a spending problem. Spending reform,not tax reform,is needed.

The corporate income tax is perhaps the biggest monument to reification that exists. If you asked the average person how they would feel about taxing income twice they would say it’s not just unfair but stupid, and yet that’s exactly what’s done with corporate profits. But the effects of reality can’t be fooled; taxes depress economic activity, period. And double taxation depresses economic activity just that much more.

What’s especially evil about the corporate tax is the manner in which Congressmen use it to dispense tax credits – only after a donation to the Congressman’s campaign, of course. It’s an extremely corrupt racket.

It will never be eliminated, though, what with all the low-info voters in the Democratic electorate.

To play the Devil’s Advocate, why not tax all corporations – foreign as well as domestic – that do business in the US at the 35% rate? No pay no play. See how well any corporation does without the American market.

20 years ago you would have been right but with the rise of other nations we are a smaller slice of the pie than we have been. We are still by far the largest, but that does not mean we rule the world economy with the impunity that we once did.

Also you levy that tax on foreign companies and you don’t expect other countries to do the same? That is exactly how you start a trade war.

Tax the transfer of funds (or the value of in kind transfers or other such exchanges of value). Levy the tax on the transferor, have it deducted from the transfer and forwarded to the US Treasury. With computers and internet this could be accomplished easily. For the cash transfers it would function like a sales tax, and for the underground economy there would be a tax as soon as someone transferred the money into a bank or other account.

Here is an example of how it would work:

A church (yes, tax all transfers, even from churches, US government or a state government, charities, parent to child, all transfers) collects its offering from the plate on Sunday. On Monday a deposit is made of the cash and the checks. The bank deducts the tax from the deposit to the church’s account. When a church member’s check in the deposit clears his bank, another deduction is taken on the transfer of funds from his bank to the church’s bank.
When the church makes its payroll deposits to employee’s accounts, a tax is levied. When an employee transfers funds from his account to pay his power bill, or whatever, the tax is paid. If the employee buys a certificate of deposit, the tax is levied. If he puts some into his IRA, the tax is levied. When dividends on the stocks in his IRA are paid to a broker, the tax is levied. When the broker transfers them to the IRA holder’s account, the tax is paid. When the bank credits interest to his CD the tax is paid. When the customer cashes in the CD the tax is paid. When an asset or money is transferred from the name of a deceased person to his estate, the tax is paid. When transferred from the estate to a beneficiary of the will or heir at law, the tax is paid. Escrow transactions taxed in and out.

Transfers from abroad to the U.S. could be conditioned upon the transferring entity collecting and remitting the tax before the U.S. institution credits the transfer. Fellow goes into a bank in the U.S. and buys a foreign currency (or letter of credit or whatever), the tax is levied on the purchase. If he goes in to exchange foreign currency for dollars, the tax is deducted.

When the government gives food stamp credits, the tax is deducted; and when the recipient uses a food stamp, the tax is levied.

The idea that our tax rates is too high is malarkey because it doesn’t take into account LOOPHOLES. For example, Apple paid just 2% in taxes last year, chiefly by stuffing the bulk of its profits overseas. Thus, the actual tax rate is much lower than what Buchanan and corporations hound it as.

Supposedly, lowering the tax rate would encourage companies to invest more, except that isn’t the case. Investments are at all-time lows while profits are at all-time highs. Furthermore, companies like Apple shed 13,000 jobs in the USA just to boost profits.

The only thing a 0% corporate income tax will attract is letterboxes. Companies that have no real presence, y’know employees, factories in the USA but declare their profits to arise in the USA through sleight of hand. They are not going to give up the opportunity to employ cheap labour elsewhere.

As a tax professional, I agree that the corporate income tax should be 0%. The trade-off, however must be that dividends must lose their favorable tax rates (ordinary dividends are taxed at the capital gains rate) and be taxed at ordinary rates. Additionally, the favorable tax treatment of capital gains would have to be adjusted.

The tax code on corporations distorts the economy in very perverse ways as lawyers and accountants, in collusion with politicians find ways to pick the winners and punish everyone else. If we must have an income tax, let the tax fall on the shareholders and employees of the corporations, rather than on the bottom line of business.

Corporations should not pay taxes. Rich people certainly shouldn’t, what with being the ‘job creators’ and all. Poor people can’t pay taxes. Hmm, that leaves the middle class that hasn’t had a raise in 30 or 40 years to pay for everything the rich and the corps want, like roads and airports and a huge military and those tax subsidies that make them all so much richer. Oh, and the accumulated debt. Let’s not forget that, that belongs to the poor slobs too.

JLF: increasingly, major companies can sell much of their goods and services to markets other than the USA, especially China but also Brazil and others. Daring companies to “see how you do without the US market” is a bluff that will more easily be called pretty soon, the way things are going, and it won’t be the companies who lose but the USA.

To Mr. Buchanan: I agree Pat, with this major qualifier: the major reduction of the corporate income tax should be combined with a gradual but substantial increase in the minimum wage. Otherwise, cutting/eliminating the corp income tax alone will be made to look unfair and perhaps it actually would be unfair.

As a matter of fairness AND political feasibility alike, we should tie a series of boosts in the minimum wage to the elimination of the corporate income tax.

“If the corporate income tax were repealed, no U.S. company would think of moving abroad, and every transnational company would think about moving to the USA. What a message this repeal of the U.S. corporate income tax would send to corporate headquarters worldwide: Relocate your company or next factory to the USA, keep every dollar of profit you earn, and either reinvest it here or take it home. Your call.

How would America benefit? Every U.S. company, liberated from its corporate tax burden, would see its profits soar and have more cash on hand for cutting prices, raising wages and salaries, and new investment and hires. And every company that relocated here would create new U.S. jobs. This would be a stimulus package to end all stimulus packages.”

I needed a laugh like this today.

All we need do is look at GE and see how many domestic jobs a created by zero (or very low) corporate income taxes.

How would America benefit? Every U.S. company, liberated from its corporate tax burden, would see its profits soar and have more cash on hand for cutting prices, raising wages and salaries, and new investment and hires. Emphasis added FE.

JGF’s response is the rational and politely-worded truth here. My version cannot avoid my anger at the evidenced truth of American Capitalism:

The first and by far most common response would be an increase in the wealth of the owners of and investors in those companies. The track record of the last 50 years is more than sufficient to support that expectation.

With all due respect, the emphasized list lacking “increasing the wealth of the already wealthy” makes it an outright lie. Wage stagnation is the deliberate action by corporations, immune to all pressures against it including legislation, which is routinely sabotaged by lobbyists and legalized corporate bribery.

Please, Mr. Buchanan. Stop perpetuating the lie. For all that I agree with you on very little regarding policy and politics in general, you’ve proven the clarity of your perception and rational analysis. I want it, and we all need it.

I’ve thought for some time now that corporations shouldn’t have to pay the profits tax. That affects your granny’s pension just like it does John B. Gottrocks’s money, that is, at the same rate. If greater income equality is desired, I strongly recommend a progressive property tax on households. I don’t believe the 10% tax on $2.7 trillion in imports would hold up, since that trade figure is likely to go down with the tax.

There is also something to be said for the fact that when and where they can, businesses pass along taxes to the consumer in the form of higher prices for goods and services. Thus the consumer gets stuck twice in the form of having to pay personal income tax along with indirectly having to pay the cost of excessive corporate taxes.

People like TomB & Libertarian Jerry, miss the simple truth. Corporations are not people. They are social constructs we, as society, have created because they allow us, as society, to do business better. They (or, more precisely, the shareholders) have been given special privileges, such as LIMITED liability, specifically to make them more appealing and efficient way to run a business. But, just as corporations (or again, shareholders) have been given privileges in order to promote general welfare, so are they asked to bear some burdens. I love how people talk about corporate income tax as if its existence is violating one of the Ten Commandments or something…

Also, double taxation? So is that house you bought and are paying property tax on. So is that product/service you bought and paid sales tax on. And so on. Who ever said that the only tax you pay is on your personal income?

“There is also something to be said for the fact that when and where they can, businesses pass along taxes to the consumer in the form of higher prices for goods and services.”

No, not “when and where they can,” that’s where they *always* get the money to pay their taxes.

*Always.*

Because, of course, that’s the only *place* they get their money from.

People don’t give money to a company out of charity. And people don’t lend or invest in a company just out of the joy of seeing them pay taxes on same.

And this is where some people here just aren’t following the bouncing ball. You can tax corporate income, but that’s *exactly* what and where determines employment and pay levels.

So why do you want to inflict the necessary harm of taxes *precisely* where you *least* want to inflict that harm?

Instead, as the tax pro here implied, go tax the income produced by those corporate profits. The new income from the new hires. The increased income from the established employees. The dividends that the corporation pays to its shareholders. And then the increased capital gains realized by those who have invested in the corporation with increased profits.

Indeed, tax ’em more.

Because while *those* taxes still deform some income and spending decisions (for instance, the decision to invest yet more in job-producing companies), at least they deform job-and-income producing decisions far far less.

So it’s not as if you ain’t taxing those corporate profits; you are just taxing them later, when the effects of your tax isn’t harming job and income production.

Or, to bring the matter full circle, you can look at it from the other side of the mirror as Buchanan notes: No corporation ever paid even one cent in taxes. Why? Because corporations are legal fictions and it’s only *people* who pay taxes. By taking “corporations,” all you are doing is taxing individuals *differently* than you otherwise might, and indeed doing so in one of the *most* socially detrimental way possible—by discouraging job and income creation.

So nobody’s arguing don’t tax that money; instead it’s just a matter of how to tax it in the *smartest* manner.

“The purpose of taxes at that level is to 1. force everyone else to use the state money (which is the only way you can pay your taxes) and 2. remove money from circulation to prevent inflation.”

I have only one response. The federal government supported primarily by tax dollars is running an annual deficit of just around 1 trillion dollars.

just what is your intention concerning the expense, I am unsure. Whether you want to stay with wealth distribution or artificial distribution to cap inflation. The 3.7 trillion expense must be paid or the services of government must cut. We are not even talking about the interest on the debt —

I appreciate economic theory as much as the next person — laughing — but on the ground realities matter — government must be paid for.

RadicalCenter: In an income-based tax system there has to be a tax on corporations. Abolishing our current system would require something like a consumption-based tax system. Furthermore, if we abolish the corporate income tax, everyone will just incorporate and pay no income taxes. You could suggest a counter like taxing dividends at ordinary income rates, but then corporations will just by back shares, raise their stock price, and shareholders will be taxed at capital gains rates.

One more reason for why corporations are taxed is because of their nature. The bulk of today’s corporations have a monopolistic effect on the economy. In perfectly competitive markets, resources are allocated in the most efficient manner at the lowest possible cost. No profit is possible under such circumstances, however. Now, what is the goal of capitalism? Profit, obviously. Markets are geared towards monopolies, which are a drag on the economy as a whole. This is something that has been known for quite sometime now, as the current Fed Chief Janet Yellen will attest. As profits are inherently concentrated in the hands of the few, taxing corporations acts as a grievance since their existence is owed primarily to the major changes in legal interpretation on monopolies dating back to the 1980s, as explained here. Taxation on corporate profits serves as a (weak) countermeasure from how corporations use government to hinder competition and receive taxpayer handouts.

On a side note, abolishing the corporate income tax makes no sense politically. Americans want taxes on the affluent, including corporations, to be higher.

I had the same idea you have outlined here about ten years ago. I called it a “Bank tax”, because banks would account for, collect and pay the tax, and leave the rest of Americans free from having to report their economic (or any other) activities to the government. “Transfers” would also have included uses of credit cards, but not payment of other taxes to the government.

Others were never enamored of the idea. I’ll be interested to see how others respond to your proposal now. I understood at the time that this was a tax that could only be imposed by the Federal government. Any state that tried to raise revenue this way would simply drive their citizens to deposit their funds in banks in other states. But having money in the United States was too important to the world’s wealthy to simply pick up and leave. That may no longer be the case. Note Pat Buchanan’s current column on how the Federal Corporate Income Tax is driving U.S. corporations to establish foreign citizenship for themselves and the ability to shelter their foreign earnings from U.S. taxation. Today it may require a convention among all the G-8 and other states with major banks to impose this kind of new tax structure uniformly.

Is this not the tax the EU has been working on since the crisis of 2008?